December 8, 2023

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Diving Overview:

  • According to a new report from Eduventures, a higher education research and consulting firm, companies offering uncertified data face a deeply competitive market and barriers to growth such as heavy losses and expensive marketing.
  • The report examined the three largest publicly traded companies in the sector – Coursera, Udemy and 2U, the owner of edX. All posted flat sales growth that outpaced sales growth in the broader upmarket sector.
  • But their revenue over the past 12 months was still less than 1% of tuition and fee revenue generated by public and private nonprofit colleges. The companies also reported significant losses, with loss ratios growing at Coursera and Udemy, the report said.

Diving Statistics:

The undergraduate space has been revitalized by online education platforms boosted by the pandemic and an increase in partnerships with major universities, as well as an influx of private capital, the report said.

But non-degraded enrollment still lags far behind enrollment in degree programs. The report claims that an analysis of Coursera, Udemy, and 2U can provide insight into the broader higher ed market.

Private providers face the challenges of enrolling fewer students and earning less revenue per student than traditional four-year colleges. Four-year private institutions earn $15,911 per student annually, while four-year public colleges earn $6,807, according to the report. By comparison, 2U makes $1,413 and Coursera makes $498 per student. Udemy ranked with the lowest ratio, with $77 in revenue per student.

Companies have also devoted an extremely high percentage of their budgets to marketing to stand out in a saturated field. During the third quarter of 2022, Udemy’s marketing spending accounted for nearly half—49%—of its revenue. 2U and Coursera spent 47% and 43% respectively on marketing during the same period.

A combination of low revenue per student and expensive marketing could help explain the trio’s significant losses, the report said. And their loss ratios—calculations comparing their losses to income—are rising.

In the third quarter of 2022, Udemy’s average loss rate skyrocketed to 29%, up from 7% year-over-year, the report said. At Coursera, the average loss rate for the last three quarters of 2022 rose to an average of 34% from 29% in the same period last year.

Comparing the 2U’s losses and gains is less straightforward. Purchase of edX increased its loss ratio to 116% in the first quarter of 2022 – up from an average of 36% a year earlier. After this acquisition, 2U reduced its marketing and real estate costs and turned a profit a significant reduction in the number of employees. Its loss ratio quickly fell to 53% in the second quarter and then fell to 13% in the third quarter.

2U is not the only company looking at cost-cutting measures. Udemy recently laid off 10% of its international workforce.

However, there is still room for expansion in such an expensive and competitive market – especially in selling non-gradual programming to enterprises, the report said. While business-to-customer non-degree enrollment has slowed, business-to-business enrollment is gaining share. And business leaders are interested in cost-effective ways to address skills gaps caused by labor shortages and attrition, according to the report.

Data from a recent survey backs this up—almost three-quarters of employers say they have alternative credentials helped their organization fill skills gaps.

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